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How to Keep Unemployment Insurance Costs Down

Small business owners experienced an increase in their per employee unemployment insurance tax liability in 2011, due to high turnover, the weak economy and dwindling state unemployment insurance trust fund balances, according to the National Federation of Independent Business.

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This increase was as high as 250% per employee, and is another blow to struggling small business owners already facing new government regulations and anemic consumer spending the NFIB reported. But there are steps small business owners can take to budget and cut these costs.

Ronald Adler, president and CEO of Laurdan Associates, Inc., said being cautious during the hiring process and documenting issues throughout an employee's term are easy ways small business owners can control some of the costs associated with unemployment insurance.

Unemployment insurance tax costs vary depending on state laws, according to Adler, ranging from less than 1% to more than 13% on the worker's taxable wage base.

Here are some of Adler's tips for small business owners to control unemployment insurance costs:

No. 1: Be picky when hiring. The better the employee you hire, the lower the chance is that you will have to let them go and ultimately wind up paying unemployment insurance. The liability process begins from the day you hire, Adler said, so sound hiring practices are key to keeping costs down.

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"It’s hiring the best person you can, instead of someone who is upright and breathing. In this economy, there is more choice."

No. 2: Proper employee training. Make sure your employees know what is expected from them starting the moment they are hired, Adler advised. Give them an employee handbook, and document everything.

"It's ensuring the person know what is expected of them. If an employee is terminated for violating the attendance policy, they may not have known what the policy was. If you can't prove they knew, the person will win the [insurance] claim."

No. 3: Take proper disciplinary action. If an employee violates company policy, take disciplinary action and document it, Adler recommended. Whether the warning is verbal or written take note of it, this proves that they knowingly went against company policy.

No 4: Conduct reviews. Reviewing your employees annually is important to not only praise them for good work, but to also correct them for doing poor work, Adler said. Be sure to document the review, it comes to unemployment insurance claims.

"You need to recognize them in performance evaluations," he said. "It doesn't necessarily mean they are getting a raise, but it's about getting a better worker (out of them) and preparing for the eventuality of possibly having to terminate [if not]."

If you do end up terminating an employee, Adler said to consider if that worker was treated fairly throughout their employment with your business, and if you treated them the same as others. This will help you prepare for a possible litigation cycle, which sometimes goes hand-in-hand with unemployment insurance costs.

No. 5: Respond to claims and participate in the process. Any employer who participates in the claims process has a better chance of keeping unwarranted claims and charges against the account at bay, Adler said. Respond to claims as soon as you receive them and attend hearings. You have the right to appeal a former employee's claim, he said, which is when good documentation is crucial.

"Many businesses put a claim away to deal with later and never get to it," Adler said. "Then they don't have the opportunity to provide information about what happened, and the state will likely find the person eligible for benefits."

No.6: Review your statements. Once the entire process is complete, and you are no longer responsible for unemployment insurance, which usually maxes out at 26 weeks, Adler said you will receive a benefits statement. Review this carefully to ensure you were not mischarged, or overcharged.

"You don't want to find out the state made a mistake, and benefits were charged against the employers' account when they shouldn't have been," he said.

The NFIB recently held a Webinar called "How to Effectively Control Unemployment Insurance Costs." To view the Webinar, click here.